Forex
Euro Recovers Partially Against Dollar After 1% Fall: Russia Gas Cut, US Rate Hike Worries Linger
Published
1 week agoon
By
letizo News
Traders are reconsidering their attitude to the dollar after two important events — the Fed meeting and the publication of disappointing GDP. This gives a head start to the other major currencies — the euro and pound sterling. The Japanese yen showed bright dynamics at the end of the week, while the British pound has good potential. The euro is also trying to keep up, especially as there are new arguments for a large-scale and rapid increase in rates by the ECB. Also, the euro and pound sterling should not be underestimated by American businesses.
So, the dollar index fell below 106 on Friday, the lowest in more than three weeks. The U.S. economy is contracting for the second straight quarter, heightening fears of a recession and raising expectations that the Fed will have to slow the pace of rate hikes.
It is worth noting that the dollar has retreated from its 20-year high of 109.3 reached in mid-July, and is on track to decline for the second week in a row.
Dollar bulls are trying to hold off the 106.00 area at the end of the week. If the index breaks above that level, we could see a move to the 2022 high near 109.40. At the same time, an attack of additional weakness could bring the dollar down to 104.70. Therefore, the euro and pound sterling against the dollar strengthened.
The momentum of the euro growth today was given not only by the weak dollar, but also by the domestic component. GDP growth and inflation reports were released, which surpassed analysts’ estimates. Inflation does not seem to have peaked, as consumer prices accelerated in July to a new record high of 8.9%. Against this background, the difference between the euro and the pound sterling has shrunk.
What will be the exchange rate between the euro and the pound sterling?
As for economic growth, preliminary data showed a 0.7% quarter-on-quarter increase exceeding market expectations for a 0.2% gain. Reports from France and Spain surprised with growth, while Germany’s economy unexpectedly stalled. On an annualized basis, GDP rose 4% vs. the forecasted 3.4%. Thus, market players have more arguments in favor of a more aggressive approach by the ECB.
How will this help the euro? With a strong dollar and a recession expected in the region next year — nothing. Wells Fargo is pessimistic about the euro’s prospects. They expect the EUR/USD exchange rate to fall to 0.9600 or below. The ECB is likely to have a relatively limited cycle of policy tightening. The situation with a potential recession is exacerbated by restrictions on Russian gas supplies and concerns about rationing of gas consumption in the eurozone this winter.
Economists expect the eurozone economy to shrink by 0.2% in 2023
However, Friday’s data may briefly support the EUR/USD pair, which gained bullish momentum and rose above the key level of 1.0230. The sellers are staying away for now.
If 1.0230 proves to be support, the next target for bulls may be 1.0300 and 1.0370. In case of breakdown of 1.0230 additional losses may be observed in the direction of 1.0200 and 1.0150.
The Euro, as well as the Pound, are the currencies that have had disappointing results this year. However, they can start a strong series of recovery against the dollar if there is more evidence of problems in the U.S. economy.
Is pound sterling the strongest currency today?
GBP/USD will be in the spotlight for the next week and a half. The markets will pay attention to the pound due to the next meeting of the Bank of England. Please be reminded that the previous approach of the CB to increase interest rates (by 25 bps) was strongly criticized as the inflation rate in the UK has grown to a new 40-year high of 9.4%.
Traders now wonder if it will join the rest of the central banks known for raising 50 bps or more on Thursday. It is worth noting that the current situation is far from peak euro pound sterling historical exchange rates.
If that happens, the GBP/USD might hit 1.2500 by next Friday, especially if the U.S. macro data is weakening in parallel.
Commenting on the current situation, analysts stated that GBP/USD rose for the second week in a row after the exit of the descending wedge pattern upwards. The short-term path of least resistance is directed upward. The pair should strengthen the bullish rush and move higher.
Short-term support, at 1.2090, is expected to keep GBP/USD from a possible failure.
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US recession and stock market. Thomas Barkin, Fed: Recession is virtually impossible
Forex
US recession and stock market. Thomas Barkin, Fed: Recession is virtually impossible
Published
2 days agoon
August 6, 2022By
letizo News
The U.S. recession and the stock market are closely linked. The key U.S. stock market indices – Dow Jones, NASDAQ and S&P 500 – have resumed their growth, and this movement already raises a lot of questions. To remind you, the U.S. stock indices have been rising for several weeks in a row and even updated their previous local highs, recovering by 40-50% after falling in recent months.
Thomas Barkin, one of the members of the Board of Governors of the Fed, said that inflation is declining because of the leveling of demand. He is probably referring to the core rate, which has really stopped rising. But the core continues to be at its highest level in 40 years, and we wouldn’t say at this time that inflation is slowing.
On US recession news Barkin also said that inflation will not fall immediately, sharply or quickly, and that the Fed is unlikely to get help from supply chain fixes or other world events. He also noted that the U.S. economy is not in danger of a recession, and at this time there is only a slight slowdown in GDP growth, as a recession is not possible with 400,000 new jobs created each month (NonFarm Payrolls).
In light of this statement and earlier statements from Powell and Yellen, Friday’s NonFarm Payrolls report becomes even more important than before. Recent reports have indeed shown the strength of the U.S. labor market, but what if Nonfarm Payrolls start to decline? What will the Fed members say then, how will the U.S. stock market move? We still believe that despite the strong upward correction, there is still a long way to go before the downtrend is over.
Forex
Euro rate chart: the euro is not going into a trap
Published
2 days agoon
August 6, 2022By
letizo News
No matter how much FOMC officials try to convince investors of the Fed’s commitment to aggressive tightening of monetary policy, so far the financial markets are not taking the Central Bank’s bait. How has this affected the euro rate chart?
U.S. stock indices started rising again and hit a peak in the last two months. The reason for this is the expectation that the Fed will introduce new mechanisms to stop the fall. At the same time, there are no guarantees that the Fed will take drastic measures. Owing to the fact that the situation is ambiguous and nobody makes accurate forecasts, the EURUSD exchange rate constantly fluctuates in one direction. The pair cannot go beyond the consolidation range at 1.01-1.03.
USD to euro rate: what’s going on in the currency market?
Investors are hoping the report on the U.S. labor market in July will give some clarity. No one wants to get ahead of the curve before it is published. In such a situation in the past, one or several big players could provoke a false-break. Statistics were used to implement that idea. Now nobody wants to take risks. The Eurozone data does not lead to serious fluctuations in EURUSD.
In particular, the fact that German manufacturing orders have been declining for the fifth month in a row might have dealt a blow to the euro. However, the bulls in the main currency pair found it positive: in fact the index fell by 0.4% m/m against a forecast of -0.9%.
Meanwhile, consumer expectations for future inflation remain at elevated levels in the eurozone. Respondents expect gross domestic product to contract by 1.3% over the year and unemployment to rise to 11.5%. This is in stark contrast to the central bank’s forecasts. It does not expect a recession and sees the unemployment rate at 7% through 2024.
FOMC officials are 100% convinced that if monetary policy is tightened, the markets will start to fall. But this is a natural phenomenon. No one has canceled the market cycle. It’s a pattern. So we should not expect domestic consumption to decline and inflation to come to a complete halt.
Forex
European stock market news: Europe started to lag behind the rise in U.S. stock prices
Published
2 days agoon
August 6, 2022By
letizo News
Current European stock market news: U.S. stock futures rose slightly Friday, helped by tech stocks as investors prepare for the monthly U.S. jobs report, which is likely to revive the recession debate.
Futures on the Nasdaq 100 rose, signaling the underlying indicator could reach a 20% gain from its June low and meet the technical definition of a bull market. The S&P 500 futures were up modestly.
European stock market analysis
European equities were flat, but they started to lag their “American counterparts” and the daily candlesticks clearly show it. The Stoxx50 index is still undecided as media firms and insurers drag it down.
Investors are returning to defensive stocks, especially tech stocks, as falling bond yields make long-term assets more attractive.
The global stock index is poised for a third weekly gain, and is approaching a two-month peak in recovery from bear market lows, helped by solid earnings at U.S. companies.
U.S. jobs data on Friday is the next key point for the markets. Likely hiring, according to Anne Wong, Bloomberg Economics’ chief U.S. economist, things eased in July, but the labor market remains in line with a growing, not-recessionary, economy and the Fed will continue to raise rates.
Separately, Democrats agreed to a revised version of their tax and climate bill adding a new 1% excise tax on stock buybacks.
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